Saturday, June 9, 2012

A lot of Indians have some compunctions with capitalism. Because of the ancient Indian ideal of a minimalist lifestyle and sacrifice at some age in life, many are of the view that an interest in monetary profits is bad. A lopsided reading of the scriptures might have had the appeal to make communism and then socialism popular in India during the period of British occupation and later. As compared to them, capitalism has taken a backseat in popular understanding of Indians.

But if we are to consider the four purushaarthas of Hindu Dharma, (i.e. Dharma, Artha, Kaama and Moksha), the presence of the second purushaartha Artha (money/economics) implies that ancient Indians had never completely given up on money making. Indeed the ideal was to gain money through means of Dharma, i.e. through righteous means. And capitalism can do nothing to hamper that if the society has been already conditioned to be righteous. A basic definition suggests that it is all about private ownership of means of production, and creation of goods and services for profit by private owned enterprises. The profit motive is essential to encourage a player in the market to perform well and when it is rewarded, it is an incentive for good behavior. For our case in this post, we will take free markets as a synonym for capitalism.

For a pretty basic understanding of some economic ideas, I suggest you read this book. It begins with some essays by Bastiat busting some myths on free markets. Towards the end, there is a section where twenty criticisms of free markets are addressed by Tom Palmer. He starts off addressing the ethical criticism of free markets. For the sake of brevity in our post, we will consider only a few points that largely relate to ethical criticisms:

1) Markets are immoral or amoral: Here the author mentions that markets make people think of advantages, for which people enter into an exchange. The exchange is usually of the type where a product or service is exchanged for money. To enter an exchange, a person has to respect the rightful claims of other people, and they are constrained by morality and law from simply taking stuff they want. To me, this aspect of markets endorse already existing moral sentiments, unless your moral sentiments included taking stuff. Not respecting other people's sentiments would break exchanges, and I am sure people will have no issues dumping the moral offender.

2) Markets promote greed and selfishness: The myth here is that people are trying to find the lowest prices or make the highest profits, ergo markets make the people greedy and selfish. But the truth is, they don't bar people willing to make small profits or people willing to shell out more from entering the exchanges mentioned in the first point. It is more of a system which accomodates all types of people. Moreover, if wealth is generated by being greedy and selfish, it also allows for its distribution as charity, which many would agree is the epitome of selfless life. Wealth created and distributed this way is far more efficient at running the society than brutal tax and spend schemes which generally are means of wealth destruction.

3) Reliance on Markets leads to monopoly: The myth here is that free markets would eventually lead to few big firms selling everything. But monopoly is what a government gives to select groups of people to deliver products and services. Free markets rest on the principle that anybody can enter the market, exit the market, buy from whomever, and sell to whoever. If in the end game of providing a product/service, one company emerges a winner then it has been through a process of selection, and it would have the best possible stuff of that category, so what is wrong if it has a "monopoly"? If after acquiring "monopoly" it starts downgrading its quality, a competitor will definitely rise from scratch and people would dump the behemoth company in due course of time. If the goods produced by the company are highly profitable, there will surely be more people aspiring to live the life of its owner and again somebody with an imagination will rise to compete with the behemoth. Thus, in my view, such a "monopoly" would not last for long.

4) Markets lead to more inequality than non market processes: Here, it is often considered that markets reward ability to satisfy consumer preferences and a person who is more able is rewarded more than the other. However, a 2006 Economic freedom of the World report suggested that this is not true, that reliance on free markets has a weak correlation with income inequality. Moreover, it substantially raises the income of the poor, and who would dislike that. Also, even if there is an inequality, there is nothing the market can do to keep a person dirt poor, or keep a person filthy rich. A person's outcome in life depends on what he does, and it is always in a state of constant flux. 'Jaisi karni waise bharni', as the proverb goes.

5) Markets cannot meet basic human needs: People like to think that basic needs have to be distributed according to need and not ability to pay, and markets support the latter. However, people living under markets enjoy higher standards of living than people under socialism, so it might be considered that markets do indeed support needs well. It's just that the means to support the needs are not through wealth redistribution, but through wealth generation. By endorsing people's ability to generate wealth, markets allow people to get wealthier, and through that way, they end up supporting their needs too.

We thus see that markets have nothing that impact moral nature of the person. What wires the moral nature of the person is not free markets or capitalism, but a sounder education. After a sound moral nature is established, markets will only support existing moral values and make them stronger. In fact, wealth generation through free markets worldwide has allowed people to have more free time, and greater curiosity to seek out other views of life. Many of them stumble upon scriptures of Hinduism, and reading them, absorb at least some ideas of Hinduism and some have even converted to it. If there is any bigger ally of Hinduism, it is capitalism. Were the ancients aware of the advantages of free markets? Would they have implemented them after establishing independence from foreign powers? I don't know for sure yet, but India's experiments with socialism/communism begin with the first contacts with communist internationals established in 1871 by West Bengal communists. By then, Thomas Babington Macaulay was long gone from the face of the earth.